health care technician w/ I/O loan in $1.1 mil house

[bmarum]

This forum really needs a quote feature, but here goes anyway.

"Bmarum, sounds like you have some very fortunate friends to be in such a cush job. I'd be curious as to what type of profession/industry they are in that "guarantees" steep salary increases. My guess is that there are not too many industries like theirs. These jobs you speak of sound almost too good to be true."

I wouldn't say they're cush jobs — these people work quite a bit. But it is amazing what you can earn with a professional degree in this town.

"Not everyone who drives while intoxicated will get into a car accident. Whould you still advise them to drink and drive? I'm just using your own logic."

Of course not. And I never would have advised these people to take out exotic loans. My point is simply that just because they did so, does not mean they're going to be financially ruined. Your analogy regarding the car accident and the drunk is appropriate. Getting the exotic loan to buy a house you couldn't afford isn't smart, just like getting behind the wheel when drunk isn't smart. But, when people are forecasting a financial disaster based on the simple fact that someone took out an exotic loan, the fact that not all people who took out exotic loans are going to end up in trouble IS relevant. In essence, the doom and gloom forecast for that particular individual depends on the drunk driver getting into an accident, which as we all know doesn't ALWAYS happen.

If I haven't made this clear already, my beef is with the blanket statements people are making, not with the general idea that the exotic loans of the past couple of years are going to cause problems for the real estate market, and a lot of individuals, in the very near future.

It’s just not going to be all of them.

[powayseller]

bmarum – which jobs guarantee 50% salary increases in the next 3 years?

All you need is 30,000 motivated sellers to lower the prices for the other 1 million homeowners. We have 30K sales/year, and these sales set the price for the other homes. We’ve got 80% of mortgages last year taken as “liar’s loans” and “suicide loans”, so named because they were taken by people who use them as affordability, not financial planning products. I am curious why this bothers you so much. I did not create this situation. I am just analyzing and reporting what I see. Why don’t you sell it if you are worried?

I must say, I am always surprised when people get in a huff about my analysis. If you disagree, give me your data. Getting mad at me doesn’t change the looming ARM reset problem, which is widely covered now in the media.

[Daniel]

Bmarum,

Totally agree with your point. There will be pain due to the lax lending standards, but many will survive. I also have a friend who got an exotic loan to get into a house a couple of years ago; I don’t think he and his wife will have any trouble meeting the increased payments.
Their incomes are probably double what they were 2 years ago.

However, it is very likely that my friends will lose some money, even if no foreclosure or bankruptcy is on the horizon. If I buy a $700K house, I lose $200K when it drops to $500K, no matter what type of loan I have, or even if I paid cash. For those in strong financial positions (lots of equity or lots of cash) the pain may be bearable, but the amount of money lost is just the same. One could actually argue that those in 100%LTV suicide loans have less to lose than those who have large equity stakes.

[VCJIM]

Well Poway…he is right. Not everyone with these kinds of loans is going to default or end up in a forced sell. But I agree with you, and he also agrees, that it will be a significant force. As I wrote before, we will find out how resilient people are these days!

[bmarum]

PS,

Nobody’s in a huff about your analysis and I don’t disagree with your position that the SD real estate market is heading down. (I do regarding the degree to which it’s going down, but that’s another post.) What DOES bug me is your constant use of blanket statements to make your point. There is no place for such statements in thoughtful analysis and in my opinion your use of them detracts from your otherwise valid points. I used to be like you — constantly seeing things as black and white when they weren’t. Perhaps that’s why it bugs me so much.

[Daniel]

Powayseller,

I think that you fail to see the object of bmarum’s criticism here (blanket statements, black and white thinking and so on). It’s not necessarily what you say, but how you say it. I’d have to say that he/she is spot on.

[SDbear]

Powayseller,
I don’t think there was anything in Bmarum’s posting to suggest he was mad at you. I think you have to change your attitude. According to you anyone who does’nt agree with your point of view is either stupid, a liar or mad.

I had a 35% increase in salary in the past 3yrs and I don’t think 50% is a stretch. I know people who have had it. Remember Bmarum’s is not talking about average salary increase.

[DaCounselor]

You mean to tell me this poor guy has only built about $500K in equity in two years? What a terrible predicament to be in.

Always remember – Chicken Little was just a youngster without much experience and a wide-lens perspective. If you talk to an Old Rooster like me you will learn that the sky is not actually falling. Some bodies are likely going to be coming down fast, but the sky is not falling.

[powayseller]

I again kindly request data on which jobs in San Diego are going up 50% in the next 3 years. Please name the occupation, and how many of those jobs currently exist. Until then, I think most people with exotic loans will default.

Just think about it – people whose loans reset in beginning of ’08 and can’t make their payments, won’t see their NODs until next summer! We are already down 10% on many homes, and some are back to 2004 pricing. What will happen next summer, when we get the first wave of thousands of NODs?

I did an analysis of the impact of ARMs on CA in another thread. CA and FL had the highest ARM useage in the country.

The question is: how many people with ARMs can handle the 30% – 70% increase in payments when their loans resets? I have yet to get any statistics on how many jobs in San Diego have that kind of quick pay increase. It doesn’t matter how MUCH the job pays, but how much the pay INCREASES.

I don’t recall saying EVERY ARM holder will default, just that MOST will do so. I think that makes me gray 🙂

[(former)FormerSanDiegan]

More gray area to contemplate …

PS wrote “In a market of rising interest rates, anyone who is not converting to a loan that is FIXED and PAYING PRINCIPAL, is in over their heads.”

IMO this should read “In a market of rising interest rates, anyone who CANNOT convert …”

My previous example in this post outlined a person who could convert, but would likely be better off not converting. That “hypothetical” person is real (but the loan numbers were numbers were scaled to be approx the same as PS’s example).

The 20%+ down IO people should be OK.
The 0% down, Neg Am, IO, with 1-year teaser rates are already in trouble

Other factors: Debtor’s net worth, income, etc.

Until we have data on I/O arms and associated data on the distribution of the net worth and incomes (or debt ratios) of those taking out these loans, it is difficult to predict whether MOST, SOME or ALL of these people will default, sell, get divorced, etc.

Who has these data ?
Maybe the lenders do !
What are they doing ?

[Diego Mamani]

Blanket statements…

What DOES bug me is your constant use of blanket statements to make your point.

And worst of all, many such blanket statements are based on anecdotal evidence!

On another news… today’s LA Times’ Business section had two stories on the cooling housing market. OTOH, my small, community paper (south Ventury Co.) has completely ignored the deflating bubble. Of course, their main source of revenue are all those realtors’ and mortgage brokers’ ads!

[(former)FormerSanDiegan]

Isn’t the following also a blanket statement :

“What DOES bug me is your constant use of blanket statements to make your point.”

[ocrenter]

powayseller, I think the biggest problem is looking at these guys’ jobs and labeling them as not worthy of being savvy real estate investors.

when I heard the medical assistant with an unemployed husband is purchasing a home in The OC for $600,000 and keeping her condo to rent out. I celebrate her bravery and raw guts. That type of investment takes guts that I frankly don’t have.

when a postal worker tell me about his multiple investment properties around SD, I’m proud to know we have the next Robert Kyosaki sorting and delivering our mail. with guys like that overseeing your letters and bills, don’t you feel that 39 cents on each letter is worth every penny?

likewise, celebrate the achievement of that radiology tech. rather than wasting years in med school and residency and got left behind by the real estate boom, this radiology tech took charge of his life, went to devry technical institute, and now live the life of luxury that the doctor ordering the x-ray can only dream of.

this is the American dream! don’t fight it, embrace it!

[rankandfile]

I think that what you said about the blanket statements is valid and it sort of goes without saying on this forum. Many of us are aware that some really smart people may have employed these financing vehicles because they calculated that they would work well for their current and future situations.

Sduuuuuuude, surely you must know that my analogy was purely for effect and not a true apples-apples comparison to exotic loans? Bmarum understood it for what it was. Perhaps you have some better analogies?

[bmarum]

Isn't the following also a blanket statement : "What DOES bug me is your constant use of blanket statements to make your point."

No, it is not. Had I said she always makes blanket statements, then it would be. Intead, I said she constantly does it.

con·stant ( P ) Pronunciation Key (knstnt)
adj.

1. Continually occurring; persistent.
2. Regularly recurring: plagued by constant interruptions.

 

[Author]

Posts